Southwest Airlines
Introduction
SouthWest Airlines was established in 1967 and it has its headquarter in Dallas, Texas USA. It adopted its current name in 1971 and has been operation ever since. The airline is one of the leading low cost firms in the air travel industry. The firm as of the year 2011 was ranked to have carried the most number of domestic passengers in the US. The firm strives to keep its prices low to the customers and at the same time maximize the investors’ income. Its operations require the buying of aircraft parts, indirect supplies like photocopying papers used in the grounds office and such other goods that are involved in the operations. The supply process involves production, supply, inventory, location, transportation and information (Cachou G.& Terwiesch C., 2013).
In a bid to keep the cost of their services affordable, South West Airlines have a policy of using recycled goods. They also believe in the need to conserve our environment. For instance, printer cartridges and toners used in the office if accumulated for a long time can negatively affect the environment. At South West, the office products used are recycled and there is an agreement with the supplier that the ones already used can be returned back to the supplier for further recycling. This helps eliminate such wastes from harming the general public. The purchasing department aims at achieving their objective by all means including contracting supply services to small business that belong to the commonly discriminated people. The department impartially treats the shortlisted suppliers during the selection process. They select the supplier that gives quality products at lower cost. That also depends on the particular items that are required (Cachou & Terwiesch, 2013).
Estimating and reducing Labour cost
Every business has an objective of making profit among other objectives. To achieve this aim the business can either increase the price of the product or cut the costs of the product. SouthWest Airlines is one of the firms that have a low cost policy. The procurement department is one of the departments that can majorly influence the cost of production. For instance the department has to bargain for low cost air craft parts, engine and other supplies that are needed. The department can reduce labour cost. In the course of its operations the firm may wish to reduce labour cost. This basically means making decisions to change the current supply chain (Cachou & Terwiesch, 2013).
During decision making the firm has to consider the costs involved in the conversion from the current supply chain to the new cost effective one. This cost involves the cost that could be incurred such as the production gaps while adjusting to the new supply chain. Overtime costs could also be incurred and such other costs as scrap and rework errors. The firm should also consider the risks that could faced should the firm adapt to the new supply chain. It could be necessary to work with the current supplier to meet the requirement of the firm. The airline has also bee able to control the labor cost of its employees by hiring competent workers who are more efficient in delivery of service thus the organization spends less on salaries of its employee. (Cachou & Terwiesch, 2013).
The firm’s management uses cost cutting strategies to reduce the costs incurred. These strategies include lean, six sigma, TQM and 5s. The most appropriate for Southwest airline has been the Six Sigma as will be extensively explored in this paper (Cachou & Terwiesch, 2013).
Link between Operation and Finance
Operation and Finance in any business work together through inter dependency where they operations of each department must be congruent so as to lower the operation cost, both have critical roles with regards to the day to day activities of the business. Finance department give information necessary for continued running of the business entity. The operation department on the other hand is charged with the duty of running the actual activities of the business. In Southwest Airlines the operations and finance department work closely together. In finance department, information on annual sales and purchases, incomes and expenses among other are kept. The department serves to prepare the financial statements during and after the end of a trading period. The department foresees all money related activities in the organization (Lauer, 2010).
Southwest Airlines finance and operations departments closely work in any operation involving money; the finance manager has to be consulted to affirm that such undertakings proceed. The purchasing department comes up with a budget of what they so wish to buy and then forwards it to the finance department for approval (Cachou & Terwiesch, 2013). They both aim at maximizing the utility of any commodities bought. The cost of production is to be reduced as such unnecessary purchases are eliminated and recycling of waste is also done to cut on cost. Both operations and finance departments take part in decision making processes that focuses on spending activities and even the budget making. Finance department identifies the need to raise more funds the operations department does the actually procedures aimed at raising funds (Cachou & Terwiesch, 2013).
Variability and Its Impacts on Process Performance: Waiting Time Problems
Southwest Airlines aim at pleasing the customers and serving them as they deserve to meet maximum utility. Most consumers are not so pleased with the fact that they have to wait for sometime before their demands are met be it physical queues as in supermarkets or virtual lines where one calls and customer service and a tune is played as s/he has to wait for him/her to be attended to. The waiting time crisis arises where the demand for a particular service is higher than the supply for a certain period of time. Waiting time can also occur as a result of variability that is if the implied utilization is below a hundred percent. Most entities have tried to battle out the waiting time crises but somehow it has never been eliminated (Cachou & Terwiesch, 2013).
Southwest Airlines has adopted a number of strategies aimed at reducing the waiting time. One of which is the reduction of time used to pack the passengers luggage. When luggage is parked on time the delays are reduced big time. There is also a computer screen that allows for customer supervision. They are kept up to date with the schedules and time table on what goes on. The airline is also one of the few that uses point to point services. It also avoids the hub systems that are favored by other rival firms this is in an attempt to avoid congestions at this points. Congestion can be a major cause of delays to customers, when delays are reduced the turnaround time is also reduced. (Cachou & Terwiesch, 2013).
In Denver, the airlines has adopted an intentional connecting opportunities, in this about six planes are scheduled to arrive and depart at the same time. This ensures that all of them leave at the same time hence time is collectively saved. These strategies also form a basis of maximizing revenue. Southwest is famous for its fast services; the turnaround time is reduced substantially. The planes arrive and quickly empties out travelers and luggage, reload, refuel then depart as fast as possible. This has attracted customers from rival firms in the recent past. Customers are also called upon to arrive at the airport one and half hours before departure time in preparation for their flights (Lauer, 2010).
Betting on Uncertain Demands
The risk of demand uncertainty affects many airlines and southwest being one of them. Higher demand uncertainties somehow lead to a likelihood of experiencing higher demands chracteristics. Demand uncertainty can also lead to increase in cost as the demand cost is not pre-planned. Uncertainty in demand leads to increase in cost elasticity (Cachou & Terwiesch, 2013). For planning purposes the demand of a firm’s product should be certain so that the costs are not varied so much without expectations. This year Southwest Airlines tops the numerous airlines to be having the highest profits based on estimates. Based on the quarterly financial statements it had received higher revenue that could cover its cost. Many customers had moved from other rival firms and started using the airlines services.
Proper planning by the airline has been instrumental in making sure the company maximizes its revenue during the peak season and reducing cost during the low season so as to remain in business. When the demand for air ticket is high the airline makes many flights and thus its able to go through low season where the planes are well serviced. The demand for their services previously had been underestimated; the finance department did not clearly foresee the possibility of making such high sales. In the process the cost of the services also increased substantially. Still the airlines became one of the leading in profit making. The airline has continued to grow in these recent years. It has overtaken its other competitor firms (Lauer, 2010).
Six-Sigma Capacity
This is a mechanism used in operations management in which the root cause of a business problem is identified and a solution to it is provided. Southwest Airlines uses this approach in most decision making process. This approach is data driven and high performance in relation to other approaches such as the theory of constraint. At strategic levels this approach helps drive an organization to its exact market place and provide real improvements. At operational level the approach fits a firm’s product to meet the exact customers’ specification. In this the demand for the product can then be improved (Cachou & Terwiesch, 2013).
Six sigma is a problem solving approach that can be used in any organization. One of management’s functions is to solve organizational problems; sigma six could be one of the strategies that could be used. This approach works primarily at the level of local link of a systems chain which involves the customers and suppliers. It is used to solve technical issues that require quantitative analysis. This approach analyzes the root cause of any problem, the possible solution and effects of the problem if it continues for a while. It gives a worst case scenario (Cachou G.& Terwiesch C., 2013).
With this approach, the Southwest Airlines can be able to eliminate even the slightest variations in its operations. This approach is help deliver services that meet a given specification as such the characteristics will hardly fall below the clients expectations.
Quality and Revenue management
Revenue management enables an entity to be able to forecast the expected sales in a certain period of time. The firm uses certain analytics to predict customer behaviors. Quality and revenue are linked in the sense that the better the quality of the products the higher the sales. This however depends on the consumer behaviors in that some customers are price oriented while others are quality oriented. When dealing with price oriented customers the quality of the products or service may not be very critical. However, when dealing with quality oriented customers the quality of the products are very vital. These customers would pay for anything as long as it is of high quality. These behaviors are therefore predicted by the quality, when quality increases they expect a price increase and they tend to like the services more (Lauer, 2010).
The Southwest Airlines provide high quality services at low cost, this means they attract many customers; both the price oriented and quality oriented. The customers tend to flock for their services at the expense of the other rival firms which either offers quality or just cost. Revenue maximization and quality do not go together in most cases. This means that where there is quality service the cost of the services tend to be raised. Similarly, cheap products and services tend to be of low quality. Total quality management has been very instrumental in improving the kind of service being offered by the airline. (Lauer, 2010).
Conclusion
Operations management in Southwest Airlines like all other management field require planning, organizing, controlling, leading and securing of resources required in the running of an entity’s operations. The various concepts in supply and operations if brought together can lead to an effective running and management of a project. Achieving all the objectives of any project is not such an easy task. Somehow it may not be possible that is where the analytical skills need to be applied to choose then order in which the various objectives can be achieved. Project management requires sound decision making and conceptual skills apart from the technical in operating any skills. Southwest Airlines is one firm that effectively brings together the various operations management concept. Starting from its very organized purchasing department, finance department and administration among others, the firm is one of the few with effective operational coordination. All the employees work aggressively towards the achievement of the firm’s visions and mission. Southwest airlines has a very well managed team that sets the goals of the company and implement them. The company is able to maximize its profits during the peak season which inturn help the company during low demand. The airline uses boeing airplanes which are more profitable in operation and low cost of maintenance and thus its revenue and operation cost are well managed.
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